Trading on Reputation

Stateless justice in the medieval Mediterranean.

Christopher Faille from the January 2007 issue

(Page 2 of 2)

Maybe. But allow me to make a few points on behalf of the Maghribi way of doing commerce.

To an extent, Greif is contending that the Italian model proved superior because, from the perspective of history, it was the one that worked. The Italian cities set off the great expansion of the West, which in time underwrote colonial empires that carved up the rest of the world. But history is filled with contingencies. Greif himself notes that the Maghribi model disappeared not because of an internal failure but because of changing external circumstances. The Italians didn’t outcompete the Maghribis; they merely had the good fortune to be situated in a more hospitable political environment.

And institutions aren’t all-or-nothing packages. The Maghribis might have adopted elements of the Genoese system, such as bills of lading or the new system of accounting, had they survived into subsequent centuries. But that doesn’t mean the results would have looked like Genoa.

Beyond the evidence of history, Greif offers a game theory argument that the Maghribi model isn’t replicable because it only works within a small community, one where everybody can know everyone else and have a sense of who deserves shunning, through a process akin to that of small-town gossip. As long as “the Maghribi traders coalition survived,” he writes, “its functioning crucially depended on maintaining an appropriate size.…[A] larger coalition implies a slower circulation of information and hence delayed punishment.” Any delay of punishment is a discount in its value and accordingly a decrease in its effectiveness. Even if the small town is spread out through much of the Mediterranean, from Gibraltar to Asia Minor, it still retains its narrow demographic limits. Given those limits, it is inevitable that at some point any actual such coalition will be outflanked and outlasted.

But the considerations that require smallness of such a coalition, in Greif’s model, were quite specific to the period. They are technology-dependent. The speed of communication is an obvious example. An increase in the number of people on my email list doesn’t slow the speed with which I can communicate with all of them. Similarly, Greif tells us it was difficult for medieval parties to “retaliate collectively against a cheater not personally known to them…due to the challenge of describing him to those who were not cheated.” Does this amount to saying that the courts of a sovereign were necessary in a world without photography?

Furthermore, it obviously isn’t the case that Maghribi only did business with Maghribi. They only entered into agency relations (requiring promises and trust) with one another, and they dealt in cash on the barrelhead with the rest of the world. But common experience indicates that dealings of the latter sort can become dealings of the former sort, or at the very least that they could become sufficiently habitual and amicable to constitute the glue of a broader coalition. In some ways—some ways—you could compare the Maghribis with certain Anabaptist communities in the United States in the 20th and 21st centuries. Mennonites and the Amish typically have informal, “horizontal” relations with one another, enforce their internal norms through ostracism, and try to avoid outsiders’ court systems. These traits have not prevented them from fruitful interchange with the surrounding society. The Maghribis, of course, were much more outward-looking than the Amish.

Greif is an indefatigable researcher and a wonderfully acute thinker, and I recommend his work highly. But he may have erred in treating the Maghribi way as a road to nowhere. It might be better conceived as a road not taken.

Christopher Faille is a correspondent for Lipper HedgeWorld, a Web-based investment news service.